SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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CURRENT REPORT
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Transition Period from_____ to _____
Commission File Number 0-22710
ATEC GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3673965
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(State or other jurisdiction of (I.R.S. Employer
corporation or organization) Identification Number)
69 Mall Drive, Commack, New York 11725
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (631) 543-2800
--------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of the close of business on March 31, 2001, there were 7,347,689 shares of
the Registrant's Common Stock outstanding.
ATEC GROUP, INC.
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TABLE OF CONTENTS
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PART I Financial Information Page
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Item 1 - Financial Statements.................................. 1 - 9
Item 2 - Managements Discussion & Analysis of Financial
Condition and Results of Operations................... 9 - 10
Item 3 - Quantitative and Qualitative Disclosures about Market
Research.............................................. 11 - 12
PART II Other Information Required in Report
------------------------------------
Item 1 - Legal Proceedings..................................... 13 - 14
Item 2 - Changes in Securities and use of Proceeds............. 13 - 14
Item 3 - Defaults Upon Senior Securities....................... 13 - 14
Item 4 - Submission of Matters to a Vote of Security Holders... 13 - 14
Item 5 - Other Information..................................... 13 - 14
Item 6 - Exhibits and Report on Form 8K........................ 13 - 14
Signature Page................................................. 15
i
ATEC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED AUDITED
31-Mar-01 30-Jun-00
--------- ---------
ASSETS
Current Assets
Cash $ 556,526 $ 100,607
Accounts receivable, net 6,264,241 10,037,462
Inventories 2,603,219 2,356,825
Deferred taxes 1,796,059 459,456
Other current assets 1,144,527 1,594,027
------------ ------------
Total current assets 12,364,572 14,548,377
------------ ------------
Property and equipment, net 464,261 532,238
Goodwill, net 1,207,576 1,346,149
Other assets 55,174 63,753
------------ ------------
$ 14,091,583 $ 16,490,517
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Revolving inventory line of credit $ 1,510,845 $ 2,173,776
Accounts payable 2,121,245 2,518,721
Accrued expenses 747,178 283,360
Other current liabilities 199,048 230,489
------------ ------------
Total liabilities 4,578,316 5,206,346
Stockholders' equity
Preferred stocks 310,582 310,582
Common stock 73,477 73,477
Additional paid-in capital 11,864,674 11,823,086
Discount on preferred stock (278,640) (278,640)
Retained earnings (deficit) (1,830,401) (17,909)
Less: Treasury stock at cost (626,425) (626,425)
------------ ------------
Total stockholders' equity 9,513,267 11,284,171
------------ ------------
$ 14,091,583 $ 16,490,517
============ ============
1
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31
2001 2000
------------ ------------
Net sales $ 14,096,629 $ 15,592,963
Cost of sales 12,790,010 13,109,451
------------ ------------
Gross profit 1,306,619 2,483,512
------------ ------------
Operating expenses
Selling and administrative 3,140,214 2,189,130
Amortization of goodwill 47,493 94,970
------------ ------------
Total operating expenses 3,187,707 2,284,100
------------ ------------
Income (loss) from operations (1,881,088) 199,412
------------ ------------
Other income (expense)
Interest income 11,399 6,364
Interest expense -- (5,122)
Miscellaneous -- 9,730
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Total other (expense) income 11,399 10,972
------------ ------------
Income (loss) before provision for income taxes (1,869,689) 210,384
Provision (benefit) for income taxes (733,400) 76,200
------------ ------------
Net income (loss) $ (1,136,289) $ 134,184
============ ============
Net earnings (loss) per share
basic and diluted $ (0.16) $ 0.02
============ ============
Weighted average number of shares-basic 7,089,744 7,185,063
============ ============
Weighted average number of shares-diluted 7,089,744 7,185,063
============ ============
2
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31
2001 2000
------------ ------------
Net sales $ 42,480,595 $ 53,313,156
Cost of sales 37,179,684 43,923,556
------------ ------------
Gross profit 5,300,911 9,389,600
------------ ------------
Operating expenses
Selling and administrative 8,224,168 8,402,552
Amortization of goodwill 138,573 139,970
------------ ------------
Total operating expenses 8,362,741 8,542,522
------------ ------------
Income (loss) from operations (3,061,830) 847,078
------------ ------------
Other income (expense)
Interest income 42,450 50,878
Interest expense (1,512) (5,122)
Miscellaneous -- 9,730
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Total other (expense) income 40,938 55,486
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Income (loss) before income taxes (3,020,892) 902,564
Provision (benefit) for income taxes (1,208,400) 362,000
------------ ------------
Net income (loss) $ (1,812,492) $ 540,564
============ ============
Net earnings (loss) per share
basic and diluted $ (0.26) $ 0.08
============ ============
Weighted average number of shares-basic 7,089,744 7,247,013
============ ============
Weighted average number of shares-diluted 7,089,744 7,247,013
============ ============
3
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED MARCH 31
2001 2000
----------- -----------
Net cash provided by (used in) operating activities $ 1,211,034 $ (610,463)
Cash flows from investing activities:
Purchase of property and equipment (92,184) (96,363)
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Net cash (used in) provided by investing activities (92,184) (96,363)
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Cash flows from financing activities:
Short term borrowings (662,931) 270,321
Purchase of Treasury Stock -- (301,905)
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Net cash (used in) provided by financing activities (662,931) (31,584)
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Net increase (decrease) in cash 455,919 (738,410)
Cash - Beginning of period 100,607 2,246,951
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Cash - End of period $ 556,526 $ 1,508,541
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4
ATEC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDING MARCH 31, 2001
Common Value Series Value Additional Discount on Retained
Shares Common Preferred Preferred Paid in Preferred Earnings
Issued Stock Issued Stock Capital Stock (Deficit)
------ ------ --------- --------- ---------- ----------- ---------
Balance at June 30, 2000 7,347,689 $ 73,477 319,429 $ 310,582 $11,823,086 ($ 278,640) ($ 17,909)
Contributed Capital 41,588
Net Loss for the Nine months Ended
March 31, 2001 (1,812,492)
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Balance at March 31, 2001 7,347,689 $ 73,477 319,429 $ 310,582 $11,864,674 ($ 278,640) ($1,830,401)
=============================================================================================
Treasury Stock Total
-------------------- Stockholders'
Shares Amount Equity
------ ------ -------------
Balance at June 30, 2000 (257,945) ($ 626,425) $11,284,171
Contributed Capital 41,588
Net Loss for the Nine months Ended
March 31, 2001 (1,812,492)
-----------------------------------------
Balance at March 31, 2001 (257,945) ($ 626,425) $ 9,513,267
=========================================
5
ATEC GROUP, INC. AND SUBSIDIARIES
FORM 10Q
QUARTER ENDED MARCH 31, 2001
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
Basis of Presentation
The accompanying interim unaudited consolidated financial statements include the
accounts of Atec Group, Inc. and its subsidiaries which are hereafter referred
to as (the "Company"). All intercompany accounts and transactions have been
eliminated in consolidation.
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, such interim statements reflect all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for these interim periods are not
necessarily indicative of the results to be expected for the full year. These
financial statements should be read in conjunction with the audited consolidated
financial statements and footnotes included in the Company's report on Form 10-K
for the year ended June 30, 2000.
6
2. Equity Securities
Capital Stock
The Company's capital stock consists of the following:
Shares
Issued
Shares and
March 31, 2001 Authorized Outstanding Amount
---------- ----------- ------
Preferred Stocks:
Series A cumulative convertible 29,233 8,371 $ 837
Series B convertible 12,704 1,458 145
Series C convertible 350,000 309,600 309,600
---------- ----------
Total preferred 319,429 $ 310,582
========== ==========
Common Stock 70,000,000 7,347,689 $ 73,477
The 319,429 shares of preferred stock, which are outstanding, may be converted
into approximately 8,200 shares of our common stock.
Stock Option Plan and Common Stock Purchase Warrants
On November 14, 2000 the Board of Directors approved a resolution for the
issuance of 2,850,000 common stock purchase options to certain officers,
directors and employees of the Company subject to shareholder ratification. The
shareholders ratified the resolution on January 9, 2001. The exercise price is
$.563 per share. On March 1, 2001 four members of our board of directors
resigned and 800,000 common stock purchase options were cancelled.
3. Computation of Earnings Per Share
Earnings per share are based on the weighted average number of common and common
equivalent shares outstanding.
4. Goodwill
Goodwill is being amortized over its estimated period of benefit, not exceeding
fifteen years.
7
5. Segment Information
The Company is comprised of four business segments. These segments consist
of the technology integration services (TIS), Business to Business (B to B),
software and manufacturing divisions. Set forth below are net sales, net income
(loss), capital expenditures, depreciation and identifiable assets of these
segments.
FOR THREE MONTHS ENDING FOR NINE MONTHS ENDING
March 31, March 31,
2001 2000 2001 2000
---- ---- ---- ----
Net sales:
TIS $ 5,523,692 6,860,772 14,422,092 26,438,375
B to B 8,187,377 8,696,291 26,089,045 24,544,717
Software -- 35,900 -- 2,330,064
Manufacturing 385,560 -- 1,969,458 --
Elimination of
intersegment revenues -- -- --
------------ ------------ ------------ ------------
$ 14,096,629 $ 15,592,963 42,480,595 53,313,156
============ ============ ============ ============
Net income (loss):
TIS $ 332,065 147,159 (461,661) 400,277
B to B (458,469) 441,600 568,459 924,238
Software 11,948 (32,603) (82,630) 306,493
Manufacturing (453,557) (285,013) (651,089) (544,068)
Corporate (568,276) (136,959) (1,185,571) (536,376)
------------ ------------ ------------ ------------
$ (1,136,289) $ 134,184 (1,812,492) 550,564
============ ============ ============ ============
Depreciation:
TIS 34,257 46,106 105,738 132,231
B to B 5,838 1,093 20,207 21,468
Software 3,215 (1,086) 9,646 15,914
Manufacturing 899 (2,841) 2,697 4,159
Corporate 9,646 17,844 21,873 35,233
------------ ------------ ------------ ------------
$ 53,855 61,116 160,161 209,005
============ ============ ============ ============
Capital additions:
TIS $ 33,213 4,000 83,295 82,099
B to B 7,425 -- 8,889 2,684
Software -- -- -- --
Manufacturing -- -- -- --
Corporate -- -- -- 11,580
------------ ------------ ------------ ------------
$ 40,638 $ 4,000 92,184 96,363
============ ============ ============ ============
Identifiable assets:
TIS $ 5,784,046 8,587,055 5,784,046 8,587,055
B to B 4,550,623 4,374,833 4,550,623 4,374,833
Software 141,597 115,330 141,597 115,330
Manufacturing 1,408,610 (139,452) 1,408,610 (139,452)
Corporate 2,206,707 3,158,624 2,206,707 3,158,624
------------ ------------ ------------ ------------
$ 14,091,583 $ 16,096,390 14,091,583 16,096,390
============ ============ ============ ============
8
6. Litigation
In January 2001 we settled the following two legal actions: (i) in Steinback v.
ATEC plaintiffs alleged we were in breach of contract and claimed $1,680,000 in
damages. This matter was recently settled for $300,000; and (ii) in ATEC v.
Dozal we brought an action against several former employees and stockholders for
violating their option agreements. Dozal filed a counterclaim against us seeking
damages in excess of $9 million. This matter was recently settled by us for
$26,500.
In March 2001, we were notified that a lawsuit by a former employee of ours
against Mid Hudson Clarklift, which named us as a third-party defendant, was
disposed of by a Order of the Court dated July 10, 1998.
Item 2 - Managements Discussion and Analysis of Financial Condition and Results
of Operations.
ATEC Group, Inc. and Subsidiaries
Overview
ATEC Group, Inc. ("Atec, our, we or us") is a one-stop provider of a full
line of information technology products and services to businesses,
professionals, government and educational institutions. We offer multiple
solutions to our clients that we believe generate loyalty and improve our
ability to seek higher margins. We have developed several core competencies,
including system design, software development, networking, server-based
computing, help desk, wireless telecommunications, voice over TP, high speed
bandwidth e-commerce, web-hosting, ISP, ASP and Internet/Intranet solutions.
Results of Operations
Three months ended March 31, 2001, compared to three months ended March 31,
2000.
Our revenues for the third quarter ended March 31, 2001 were to $14.1 million
compared to $15.6 million for the prior year, a decrease of approximately 10%.
This decrease is attributable to a drop in hardware sales by our TIS division as
our sales force focuses on service oriented business. Revenues are generated by
our sales of computer hardware and software, and related support services. Gross
margin for the period decreased to $1.3 million for March 31, 2001 from $2.5
million for the comparable 2000 quarter, a 48% decrease due to lower sales in
the TIS division and an inventory write down of 326,000 in our PC manufacturing
division. Gross margins as a percentage of revenues for the quarter were 9 % as
compared to 16% for the prior year.
Selling, general and administrative expenses for the three months ended, March
31, 2001, exclusive of amortization of intangible assets, increased to $3.1
million as compared to $2.2 million for the comparable period in 2000. The
increase is primarily for bad debts expense of $600,000. The income tax benefit
was $733,400 for the 2001 quarter as compared to a provision of $76,200 for 2000
quarter.
9
As a result of the above, our net loss was $1,136,289 for the three months ended
March 31, 2001 compared to net income of $134,184 for the 2000 quarter. For the
March 31, 2001 quarter, net loss per share was $.16 compared to income of $.02
in the prior year. Average diluted shares outstanding were 7,089,744 for 2001
and 7,185,063 for 2000.
Nine Months Ending March 31, 2001 compared to March 31, 2000.
Our revenues for the nine months ending March 31, 2001 were $42.5 million
compared to $53.3 million for the prior year, a decrease of approximately 20%.
This decrease is attributable to a significant drop in sales in our TIS and
software divisions. Revenues are generated by the Company's sales of computer
hardware and software, and related support services. Gross margin for the period
decreased to $5.3 million for March 31, 2001 from $9.4 million for the
comparable 2000 quarter, a 44% decrease due to the loss of higher margin sales
in the software division and lower sales in the TIS division. Gross margin as a
percentage of revenues for the period were 12% as compared to 18% for the prior
year.
March 31, 2001 operating expenses for the nine months, exclusive of amortization
of intangible assets, decreased to $8.2 million as compared to $8.4 million for
the prior year. The decrease is primarily for compensation expense and
consulting fees of $1,583,000 in the software division offset by $600,000 of bad
debts and a $300,000 reserve for legal settlement. The income tax benefit was
$1,208,400 for the 2001 period as compared to a provision of $362,000 for the
prior year.
As a result of the above, our net loss was $1,812,492 for the nine months ended
March 31, 2001 compared to net income of $540,564 for the comparable 2000
period. For the nine months ending March 31, 2001, net loss per share was $.26
compared to income of $.08 in the prior year. Average diluted shares outstanding
were 7,089,744 and 7,247,013 for 2001 and 2000 respectively.
Liquidity and capital resources.
Our cash position was $556,526 at March 31, 2001, an increase of $455,919 as
compared to June 30, 2000. Our working capital at March 31, 2001 was $7,786,256
as compared to a working capital of $9,342,031 at June 30, 2000. Net cash
provided by operating activities was $1,211,034. Cash used for investing
activities totaled $92,184 for the purchase of property and equipment.
To accommodate our financial needs for inventory financing, Deutsche Financial
Service granted us a credit line in the amount of $15 million. At March 31,
2001, our indebtedness to Deutsche Financial was $1,510,845, a decrease of
$662,931, as compared to June 30, 2000. We also have a second line of credit
with another financial institution. Borrowings under this line may be up to
$775,000. At March 31, 2001 borrowings under this line were nil. Substantially
all of our tangible and intangible assets are pledged as collateral for this
credit line.
10
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
We presently do not use any derivative financial instruments to hedge our
exposure to adverse fluctuations in interest rates, fluctuations in commodity
prices or other market risks, nor do we invest in speculative financial
instruments. Borrowings under our line of credit are at Prime plus a quarter
percent, which is adjusted monthly. Our interest income is sensitive to changes
in the general level of U.S. interest rates, particularly since the majority of
our investments are in short-term instruments.
Due to the nature of ATEC's borrowings and short-term investments, we have
concluded that there is no material risk exposure and, therefore, no
quantitative tabular disclosures are required.
Special Note Regarding Forward-Looking Statements
Any statements in this Quarterly Report on Form 10-Q about our expectations,
beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements. These statements are often,
but not always, made through the use of words or phrases such as "will," "will
likely result," "expect," "will continue," "anticipate," "estimate," "intend,"
"plan," "projection," "would," "should" and "outlook." Accordingly, these
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed in them. Any
forward-looking statements are qualified in their entirety by reference to the
factors discussed throughout this Report and our Annual Report on Form 10-K for
the year ended June 30, 2000. The following cautionary statements identify
important factors that could cause our actual results to differ materially from
those projected in the forward-looking statements made in this prospectus. Among
the key factors that have a direct bearing on our results of operations are:
o general economic and business conditions; the existence or absence of
adverse publicity; changes in, or failure to comply with, government
regulations; changes in marketing and technology; change in political,
social and economic conditions;
o increased competition in the computer industry and general risks of the
Internet;
o success of acquisitions and operating initiatives; changes in business
strategy or development plans; management of growth;
o availability, terms and deployment of capital;
o costs and other effects of legal and administrative proceedings;
o dependence on senior management; business abilities and judgment of
personnel; availability of qualified personnel; labor and employee benefit
costs;
o development risks; risks relating to the availability of financing;
and
o other factors referenced in this Report and the Form 10-K.
11
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
12
Atec Group, Inc. and Subsidiaries
Other Information
March 31, 2001
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings - In January 2001 we settled the following
two legal actions: (i) in Steinback v. ATEC plaintiffs alleged we were
in breach of contract and claimed $1,680,000 in damages. This matter
was recently settled for $300,000; and (ii) in ATEC v. Dozal we brought
an action against several former employees and stockholders for
violating their option agreements. Dozal filed a counterclaim against
us seeking damages in excess of $9 million. This matter was recently
settled by us for $26,500.
In March 2001, we were notified that a lawsuit by a former employee of
ours against Mid Hudson Clarklift, which named us as a third-party
defendant, was disposed of by a Order of the Court dated July 10, 1998.
Item 2. - Changes in Securities and use of Proceeds - None
Item 3. - Defaults Upon Senior Securities - None
Item 4. - Submission of Matters to a Vote of Security Holders - On
January 9, 2001 We held our annual meeting of stockholders for the
following purposes:
(i) to elect Richard J. Sullivan, Ashok Rametra, James
Charles, David A.Loppert, Scott Silverman and Kristen Sickorez
as members to the board of our directors;
(ii) to ratify and approve Weinick Sanders Leventhal &
Co., LLP, as our independent public accountants, to audit our
financial statements for the year ending June 30, 2001;
(iii) to ratify and approve our 2000 flexible stock plan;
(iv) to ratify and approve an amendment to our certificate
of incorporation to increase the number of authorized shares
of common stock $.01 par value per share, from 70 million to
100 million shares; and
(v) to ratify compensation to our board of directors.
13
The votes cast for each of the foregoing matters was as follows:
1. Election of Board of Directors.
Nominees Favor Withhold Authority
-------- ----- ------------------
Richard J. Sullivan 6,071,487 261,251
Ashok Rametra 6,045,943 286,795
James Charles 6,071,942 260,796
David A. Loppert 6,072,036 260,702
Scott Silverman 6,071,981 260,757
Kristen A. Sickorez 6,071,733 261,005
2. Appointment of Weinick Sanders Leventhal & Co. LLP.
Votes in Favor Votes Against Abstain
-------------- ------------- -------
6,103,241 186,678 17,025
3. Ratification of 2000 flexible stock plan.
Votes in Favor Votes Against Abstain
-------------- ------------- -------
2,301,807 544,298 33,005
4. Ratification of the Amendment to our certificate of incorporation.
Votes in Favor Votes Against Abstain
-------------- ------------- -------
5,792,509 491,422 23,015
5. Ratification of compensation to members of our board of directors.
Votes in Favor Votes Against Abstain
-------------- ------------- -------
5,681,273 593,512 32,178
Item 5. - Other Information - None
Item 6. - Exhibits and Report on Form 8k - On March 8, 2001 we filed
a Current Report on form 8K reporting a change in control of the
Registrant.
14
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATEC GROUP, INC.
(Registrant)
Date: May 17, 2001
By: /s/ James J. Charles
-----------------------------------------
James J. Charles, Chief Financial Officer
(Duly authorized to sign on behalf of
registrant)
15